Unit 8: Mergers & Acquisitions and Beavhioral Finance

Question 1

What is Confirmation Bias

Answer 1

Searching for information that confirms what you believe and ignoring contrary

Question 2

What is Representative Heuristics

Answer 2

Reliance on stereotypes analogies, or limited samples

Question 3

What is conglomerate acquisition

Answer 3

Acquisition of firm in unrelated industry

Question 4

What are the cost savings from acquisition

Answer 4

Economies of scale, economies of vertical integration, Complementary resources,

Question 5

An Amalgamation can best be described as

Answer 5

combination of firms joined by merger, consolidation, acquisition

Question 6

What is Overoptimism Bias

Answer 6

Over optimistic view of potential outcomes

Question 7

What are the 3 biases in Behavioral Finance

Answer 7

Overconfidence, overoptimism, confirmation bias

Question 8

What is the House Money Effect

Answer 8

Making different than normal (riskier) investment decisions with earned or won money

Question 9

What is a horizontal acquisition

Answer 9

Acquisition of firm in same in same industry

Question 10

What is Overconfidence Bias

Answer 10

Belief your abilities are better than they really are

Question 11

What are two purely financial side-effects of mergers (things that occur regardless of the merger making economic sense)

Answer 11

Earnings per share growth and diversification

Question 12

What is Affect Heuristics

Answer 12

Reliance on gut instincts or emotion instead of analysis

Question 13

What is a Circular bid

Answer 13

Corporate takeover bid communicated by direct mail to shareholders

Question 14

What is a tender offer

Answer 14

A public offer by one firm to directly buy shares of another

Question 15

What is synergy

Answer 15

Positive incremental gain with combination of two firms through merger or acquisition

Question 16

What is a joint venture

Answer 16

Agreement between two firms to create separate co-owned entity to pursue joint goal

Question 17

What is a stock exchange bid

Answer 17

Takeover bid communicated to shareholders through stock exchange

Question 18

What is frame dependence

Answer 18

Making different decisions depending on how question or problem is framed

Question 19

What is consolidation

Answer 19

A new firm is created, both acquired and acquiring firm cease to exist

Question 20

What is a vertical acquisition

Answer 20

Acquisition of firm at different steps in a production process

Question 21

What is Heuristics

Answer 21

Rules of thumb, mental shortcuts

Question 22

What are some reasons for acquisition

Answer 22

Marketing gains, Strategic benefits, Market power

Question 23

What is a proxy contest

Answer 23

Firm soliciting a sufficient number of shareholders to vote to replace existing management

Question 24

What is a merger

Answer 24

Complete absorption of one company by another

Question 25

What is behavioral finance

Answer 25

Dealing with the implication of reasoning errors in financial decisions

Question 26

What is a leveraged buy out

Answer 26

Traded firm going private with borrowed omney

Question 27

What are possible tax gains from acquisition

Answer 27

Net operating losses, Unused debt capacity, surplus funds, asset write-ups

Question 28

What is a strategic alliance

Answer 28

Agreement between two firms to cooperate in pursuit of joint goal

Question 29

What are the 3 basic legal procedures on firm can use to acquire another?

Answer 29

Merger or consolidation
Acquisition of stock
Acquisition of assets